TREASURIES-U.S. yields dip as risk aversion rises on Turkey worries

By Gertrude Chavez-Dreyfuss
NEW YORK, Aug 17 (Reuters) - U.S. Treasury yields fell on
Friday, as risk aversion worsened after the Turkish lira
weakened again following warnings of further U.S. tariffs,
reigniting worries about an emerging market currency crisis.
Yields on U.S. 30-year bonds fell to four-week lows, further
flattening the yield curve.
Late on Thursday, the United States warned Turkey to expect
more economic sanctions unless it hands over detained American
pastor Andrew Brunson, as relations between the two countries
took a further turn for the worse.
The yield spread between U.S. 5-year notes and U.S. 30-year
bonds tightened to 27.4 basis points, while the
gap between U.S. 2-year and U.S. 10-year notes also shrank to
23.4 basis points.
Among other things, a flatter yield curve reflects
diminished risk appetite amid global tension.
"Judging by the lira's performance, it appeared Turkey had
calmed currency trader concerns before its markets shutter for
an annual August break next week," said Jim Vogel, interest rate
strategist at FTN Financial in Memphis, Tennessee.
"But renewed U.S. threats late yesterday turned emerging
market risk into a game of 'chicken'."
Following threats of more sanctions, the Turkish lira fell
5.2 percent against the U.S. dollar to 16 U.S. cents.
Other emerging market currencies fell as well on Friday,
including the South African rand, the Mexican peso
and the Russian ruble.
The MSCI Emerging Market Currency Index has
dropped 5.2 percent since the beginning of the year.
Also exacerbating matters for Treasuries, China's equities
fell another 1.4 percent to end the week, on concern over a
potential slowdown in the world's second largest economy.
In mid-morning trading, U.S. 10-year yields fell to 2.847
percent, down from Thursday's 2.871 percent.
U.S. 30-year yields were down at 3.004 percent,
from 3.032 percent late Thursday. Earlier in the session,
30-year yields fell as low 3.003 percent, the weakest in four
weeks.
On the front end of the curve, U.S. 2-year yields fell to
2.608 percent from 2.620 percent on Thursday.
U.S. data showing a decline in the University of Michigan's
preliminary consumer sentiment index for the month of August to
95.3 also added to the rally in Treasuries.
August 16 Thursday 2:48AM New York / 648 GMT
Price
US T BONDS SEP8 144-13/32 -0-11/32
10YR TNotes SEP8 120-64/256 -0-48/25
6
Price Current Net
Yield % Change
(bps)
Three-month bills 2.04 2.0789 0.010
Six-month bills 2.1875 2.2425 0.013
Two-year note 100 2.6246 0.021
Three-year note 100-40/256 2.6953 0.021
Five-year note 100-2/256 2.7481 0.024
Seven-year note 100-84/256 2.8226 0.026
10-year note 99-252/256 2.8768 0.026
30-year bond 99-48/256 3.0415 0.018
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 19.00 -0.25
spread
U.S. 3-year dollar swap 16.75 0.00
spread
U.S. 5-year dollar swap 13.25 -0.25
spread
U.S. 10-year dollar swap 6.00 -0.25
spread
U.S. 30-year dollar swap -7.75 -0.25
spread
(Editing by Bernadette Baum)